Florida construction liens: representing the residential owner.

• Author: Dudley, Fred R.

This article explores the legal representation of the owner of a residential dwelling under construction with regards to nonprivity lienors when there is no payment bond. Florida's Construction Lien Law, Part I, F.S. Ch. 713 (2003), does not have a general reputation of being very "owner friendly." In fact, the ability of someone who has no contract with a property owner to create a cloud or encumbrance on that property without the owner's consent might "seem contrary to the basic legal concept of private property rights. Were it not for the competing equitable concept of unjust enrichment, construction lien rights for nonprivity lienors would be difficult to defend.

As various communities have, from time to time, experienced the highly-published reports of "bad" builders who have abandoned incomplete jobs, leaving owners to deal with construction liens for unpaid bills, some members of the news media have called for lien law reforms to protect owners. Yet, as legal practitioners in this area know, since the last major rewrite of these laws in the early 1990s, (1) the application of this law to residential properties has become more and more favorable to owners.

For example, prior to 1991, each payment made by an owner to the contractor prior to the recording of a notice of commencement was considered an "improper payment" (2); thus, the owner remained liable for liens even to the extent of having to "pay twice" for the same services or materials. However, effective January 1, 1991, the law was amended (3) so that all progress payments made prior to receipt of a notice to owner are now subject to the owner's "proper payment" defense, unless the notice of commencement has expired (4); this is also now the same as to the final payment, if it is made based on the contractor's final payment affidavit. As a result, an owner has no obligation to a nonprivity lienor unless and until that owner timely receives (5) a notice to owner in proper form from that lienor.

In addition, various "demands" have been added to this law which, if made by the owner but unmet or unanswered, can have an adverse effect on a lienor's ability to recover from the owner. One of these demands, known as the "death penalty" for lienors because it operates as a complete defense to the lien, is found in [section] 713.16(2) and (3), the use of which is recommended as described later in this article.

The codification of prior case law regarding lender responsibility, (6) added in 1992 as [section] 713.06(2)(d), is another great example of the "owner friendly" approach of the construction lien laws. Likewise with the 2003 statutory additions of a new mandated contract disclosure for every direct contract with owners, (7) an enhanced "warning" addressed to owners in the notice to owner form, (8) and a new "warning" required in the claim of lien form. (9)

Armed with these changes, the legal representation of the property owner also becomes more complex, and the attorney's failure to avail the client of these useful "tools" may well result in an increase in professional malpractice claims. This article will describe the use of some of these statutory provisions to serve the owner's best interests; conversely, a lienor's best interests might also be well served by an awareness of these recommended owner friendly techniques and procedures.

Initial Conference with Owner

Unlike many experienced lienors, a property owner may encounter construction lien issues only once or twice in a lifetime. Like most "lay" clients, a property owner encountering an actual or potential lien situation can greatly benefit from carefully following the instructions of their lawyer, many of which are not unlike those that would be given in any potentially adversarial situation: Don't discuss the matter with anyone, except the attorney, and don't sign anything, even what may appear to be a simple delivery ticket, without the attorney's review. In addition, however, the uniqueness of the construction lien law should include other areas of instructions, such as checking the accuracy of the owner's current mailing address, as reflected on any recorded notice of commencement, and making sure that all registered or certified mail is claimed as soon as possible. (10) Also, due to the "prevailing party" nature of an award of attorneys' fees pursuant to F.S. [section] 713.29 (2003), every property owner should be made aware of his or her possible exposure to additional liability for such fees. In fact, a failure to do so may cause any such liability to fall on the attorney! (11)

Attorneys are advised to include these initial instructions in their engagement letter, being careful to describe the scope of legal employment in terms the client will understand, including the basis for professional charges.

The official records should also be checked at this point for the purpose of reviewing the client's deed, comparing the legal description therein with any recorded notice of commencement, determining the "life" of any such notice (i.e., one year or some other period as stated therein), and verifying the priority status of any mortgages. (12) The attorney should also attempt to verify that improvements to the property were actually commenced within 90 days of the recording of such notice, as required to have an unexpired notice of commencement.

Gathering Required Information

The proper legal representation of a property owner encountering construction liens requires gathering information that the client may not have. Of course, the attorney may always start with those documents which the client should have, such as the construction contract, construction loan agreement, and copies of all lien documents (especially notices to owners). The client should be advised in the initial conference, and in a follow-up letter, of the importance of continuing to provide the attorney with lien documents which may be received from time to time during the representation. Be sure to include the need to keep all envelopes as well, attached to their contents, and with the client's notation thereon of the actual date of receipt. (13)

Next, written contact (or confirmation of contact) should be made with any construction lender to obtain copies of lien documents in their...